The proposed Basel-III capital norms have prompted several mid- and small-sized private banks in the country to go for a fund-raising programme.
Private-sector lenders like Lakshmi Vilas Bank, City Union Bank, Catholic Syrian Bank and Dhanlaxmi Bank have plans to raise funds in the current financial year.
The move, though, is likely to start only in the later part of 2012-13, as market sentiments are weak in the current uncertain macroeconomic environment.
“We are looking to raise at least Rs 500 crore,” said P R Somasundaram, managing director and chief executive officer of Tamil Nadu-based Lakshmi Vilas Bank. “We are watching the market and waiting for the right time to raise capital,” he said.
The Karur-headquartered private lender closed last financial year with a capital adequacy ratio of 13.10 per cent. In 2010-11, its capital adequacy ratio was 13.19 per cent.
Its local rival City Union Bank, based in Kumbakonam, plans to raise up to Rs 350 crore through qualified institutional placement.
The board of directors of the 1904-founded bank in a meeting on June 22, has resolved to seek shareholders’ approval for capital infusion. The bank’s capital adequacy ratio (CAR) as of March 2012 was 12.57 per cent, compared with 12.75 per cent a year ago.
Kerala-based Catholic Syrian Bank is also exploring fund raising opportunities this financial year. “We have got plans for capital infusion,” said V P Iswardas, managing director and chief executive of the Thrissur-headquartered entity.
“We are working on finer details. We will decide on the size of the issue in our next board meeting.”
The bank’s CAR was 11.08 per cent in 2011-12 and 11.22 per cent in the previous financial year. Dhanlaxmi Bank plans to raise to Rs 200 crore this financial year to strengthen its capital base.
“We need capital for our business,” said P G Jayakumar, managing director and chief executive of the bank, also based in Thrissur.
“We are planning to raise close to Rs 200 crore this year. We are waiting for the markets to improve.”
According to Basel-III norms, Indian banks need to maintain a minimum CAR of nine per cent in addition to a capital conservation buffer, which will be in the form of common equity at 2.5 per cent of the risk-weighted assets. In other words, banks’ minimum CAR must be 11.5 per cent. The country’s banks are currently required to have a CAR of at least nine per cent.
The Reserve Bank of India has also said the common equity in Tier-I capital must be 5.5 per cent of risk-weighted assets and the minimum Tier-I CAR must be seven per cent instead of six per cent. The new rules will come into effect from January 2013, and banks will have to implement them by March 2018.
Among the large lenders, Axis Bank is exploring fund raising opportunity through issue of debt instruments and private placements in one or more tranches. The funds will be eligible for inclusion in the bank’s Tier-I and II capital base.